**US Dollar Technical Forecast: Rebound Cut Short at Key Resistance**
*By Matt Weller, CMT, CFA | Analysis expanded and written with enhancements and additional data from external sources.*
The US Dollar (USD) experienced a significant rally in the early days of trading this week, spurred on by better-than-expected labor market data and surging US Treasury yields. However, that upward movement stalled at a critical technical resistance level, setting the tone for uncertainty moving forward. While the initial optimism about the greenback’s direction had traders anticipating a possible breakout, this resistance pause signals caution for bulls looking to push the USD higher.
This analysis will delve into the technical indicators currently shaping the US Dollar Index (DXY), and outline the key levels and factors that traders should watch. We also incorporate insights from external market sources and technical analysts to provide a more holistic view of the dollar’s outlook in the coming weeks.
## Overview: What Triggered the USD Rebound?
Much of the recent bullish sentiment surrounding the USD was sparked by unexpectedly strong labor data from the US. Specifically:
– The July Non-Farm Payrolls report showed that the US added 187,000 jobs, exceeding expectations of 200,000 but comfortably above recessionary levels.
– The unemployment rate ticked lower to 3.5%, reaffirming the labor market’s resilience.
– Average hourly earnings beat estimates, rising by 0.4% month-over-month and 4.4% year-over-year, suggesting wage inflation remains sticky.
– Weekly jobless claims also came in lower than expected, further signifying tightness in the labor market.
Meanwhile, US Treasury yields jumped across the curve, with the 10-year note touching levels not seen since 2007. Higher yields increase demand for the US dollar, as they make dollar-denominated assets more attractive to investors. This environment created an ideal setting for a USD rally.
However, despite these strong fundamental indicators, the DXY was ultimately unable to break through a significant technical resistance zone.
## Technical Analysis: US Dollar Index (DXY)
The DXY measures the strength of the US dollar against a basket of major currencies including the euro, Japanese yen, and British pound. Here’s how the chart shapes up:
– DXY saw a rapid bounce from the 100.80 area, which marks the July low.
– The index rallied over 2% in a week, reaching around the 102.80 zone, only to reverse after hitting resistance.
– Resistance near 103.00, formed by a previous support level and the 100-day simple moving average (SMA), held firm, rejecting the rally for now.
– Momentum indicators like the Relative Strength Index (RSI) are approaching overbought territory, suggesting that bullish momentum might be waning.
– The MACD (Moving Average Convergence Divergence) shows bullish crossover, but with a declining histogram. This implies that while bullish momentum is present, it might be fading.
### Key Support and Resistance Levels (DXY)
– Resistance Zones:
– 102.80 to 103.10: Key resistance range formed by the 100-day SMA and prior support/resistance zones
– 104.00: Psychological level and the May swing high
– 105.00: Multi-month resistance barrier seen earlier in 2023
– Support Zones:
– 101.50: Recent swing low and psychological level
– 100.80: July low and strong multi-month support
– 99.60: Year-to-date low
Should the DXY break below 100.80, it would signal a reversal of the current bullish momentum and could open the door for further downside towards 99.60. Conversely, a close above 103.10 would trigger a more aggressive bullish outlook.
## Broader Currency Context
To better understand the dollar’s positioning, it’s useful to examine how it’s performing against top forex counterparts.
Read more on USD/CAD trading.